Select Committee on Public Accounts Minutes of Evidence


APPENDIX 1

Supplementary memorandum submitted by HM Treasury

POST OFFICE EXTERNAL FINANCING LIMIT AND DIVIDENDS

  The Post Office became a public corporation in 1969. The telecommunications business was separated from the organisation in 1981. From then until March 2001, the Post Office was a public corporation. In March 2001, the property, assets and liabilities of the Post Office were transferred to Consignia, a publicly owned plc.

EFL

  While the Post Office was a public corporation control of its expenditure was through a limit on the company's requirement for external financing of its activities - the external financing limit (EFL).

  Since 1981 the Post Office generated post-tax profits every year. Following discussions with Government on its cash requirements it was set a negative EFL under which it was obliged to invest a proportion of the profits that it generated predominantly in gilt-edged stock or National Loan Fund (NLF) deposits. The table at Annex A sets out details of the EFLs.

  The gilts and NLF deposits are separately identified on the company's balance sheet. At September 2001 these totalled £1.816bn. The company received interest on these holdings, which was reflected in its profit figures.

Dividend Regime

  In March 2001 the Post Office became a publicly owned plc, Consignia. The regime outlined in the White Paper, "Post Office Reform", was for the company to pay a commercial dividend to Government. The Postal Services Act, which gained Royal Assent in July 2000, removed the previous constraints on such a dividend payment. The dividend payment is currently set at 40% of expected post-tax profits and subject to a floor (90% of the expected dividend).

  No payment has yet been made for this (2001-02) financial year (we would not expect payment until after the end of the financial year), and Consignia have indicated that they will formally writing to Government requesting that the dividend for 2001-02 and 2002-03 is waived. This request is being considered in the context of the 2002-03 strategic plan and the review of Consignia's capital structure.

Transitional period 1999-00 and 2000-01

  During this transitional period to plc status, following the Secretary of State's statement in December 1998 and the publication of the White Paper in July 1999, the level of EFL was set on a dividend basis. In practice the Post Office invested the equivalent of a commercial dividend for these two years in NLF deposits. As with previous EFLs, these remained on the organisation's balance sheet and there was no expectation that they would be paid to the Government while the organisation remained a public corporation.

  For 1999-00 the Post Office was obliged to invest £151m in NLF deposits and for 2000-01 the Post Office was obliged to invest £93m.

Consignia have indicated that they would like the Government to waive the "dividend" payment for 1999-00 (£151m) and 2000-01 (£93m). This would mean that Consignia would be allowed to retain the £244m in the business.

As with the request to waive the 2001-02 and 2002-03 dividend, Government is considering this in the context of the 2002-03 strategic plan and the review of Consignia's capital structure.



 
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